Does H-P need an investor like Icahn?

Commentary: Someone like Icahn could push for spin-outs

SAN FRANCISCO (MarketWatch) — As unconfirmed rumors swirled on Monday that investor Carl Icahn was buying up shares of Hewlett-Packard Co., its shares rallied, mostly on the prevailing theory that any activism at this point would be good to put pressure the embattled tech giant.

But it’s still worth asking if indeed Icahn would even be interested in amassing enough of H-P’s
HPQ, -0.33%
stock to get any kind of a voice or seat on the board. If he did, would he help or hinder Chief Executive Meg Whitman’s effort at a turnaround? Read about H-P and Icahn rumors.

There are divergent views on this hypothetical question. It boils down to what should be done to turn around the fallen tech behemoth. If you are in the camp that believes that H-P’s parts are worth more separately than as a whole company, the presence of someone like Icahn, who was instrumental in the eventual spin-off at Motorola, now part of Google Inc.,
GOOG, -1.10%
could be just the thing investors need.

Reuters

Would Carl Icahn, or an investor like him, be a good thing for H-P?

Icahn’s office did not return a call seeking comment and H-P declined to comment to a MarketWatch reporter.

UBS analyst Steve Milunovich has been advocating that H-P needs to break itself up, and predicted in early October that such a possibility will be prompted by activists or private-equity investors.

“In our view, full value won’t be realized by just improving operations — structural change is required,” Milunovich wrote in a note. “H-P with its fully developed enterprise and consumer businesses should split up in order to realize greater value.” Read The Tell about Milunovich’s view.

H-P, though, has not embraced this point of view. Whitman appears to be trying to focus on getting the company’s various operations in order, at the same time that the personal computer business is getting hit by the growth in tablets and smartphones. Under the very brief tenure of former CEO Leo Apotheker, H-P looked at possibly spinning out or selling its PC business. He also killed Palm, which H-P purchased to get a foothold in tablets and smartphones. Apotheker wanted to grow software instead. Under Whitman, H-P decided to keep its PC business in tact.

An outside investor like Icahn — or someone else — could argue that the corporate business, which includes services, servers, and software, does not need to be attached to PCs and printers. Other have argued, however, that the company gets more purchasing power when buying for all the hardware businesses at once.

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Some have also used IBM Corp.’s
IBM, +0.64%
turnaround, which mostly kept the tech giant together, as an example that H-P should follow. Milunovich argued that IBM is the wrong model in H-P’s case. Because H-P has fully developed consumer and printer businesses, it should be split apart. It’s also worth noting that if IBM is the model some would like to mirror, IBM sold its PC business to Lenovo of China in 2004. And before Lou Gerstner started the turnaround of IBM as its first outsider CEO, the company had already spun out its printer business, which is now Lexmark International Inc.
LXK, -0.35%

The other issue, however, is that H-P already has an activist investor on its board, albeit a silenced one. Ralph Whitworth of Relational Investors LLC, joined H-P’s board in November 2011, after he had accumulated over 17 million shares of the company. As part of the deal, Whitworth agreed not to publicly seek H-P’s sale or merger or spin off any of its assets. Read All Things D about Whitworth.

Would another activist investor like Icahn want to get involved with a company that already has one activist on its board?

Eric Jackson, founder of Ironfire Capital, said H-P is a tough situation for any activist investor.

“It would be tough for anyone right now,” Jackson said in an e-mail. “There are no silver bullets.” He also added that he did not think that “the styles of Icahn and Whitworth mesh well either.”

If Icahn is actually buying up H-P shares, investors will learn soon enough. But whether he or any other daring activist, could be an agent of major change, as some would hope, is a bigger question.

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